ECONOMIC IMPACT OF LEGALIZING MARIJUANA

ECONOMIC IMPACT OF LEGALIZING MARIJUANA

GWENDOLYN CARTER
PRINCIPLES OF MACROECONOMICS
4/21/2015

ECONOMIC IMPACT OF LEGALIZING MARIJUANA

The history of marijuana and how it became illegal is interesting. In 1970 the
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United States Congress passed legislation called the Controlled Substance

Act, which listed marijuana as a Schedule I drug. This is the same category
that LSD, cocaine, heroin and ecstasty and are described according to DEA
drug schedules, as having no currently accepted medical use and a high potential for
abuse. Schedule I drugs are the most dangerous drugs of all the drug schedules with
potentially severe psychological or physical dependence. Since that time it has been illegal
to manufacture posses or distribute marijuana in this country. Interestingly enough in the
same year of 1970 an essay by Gore Vidal in the New York Times, talked about a past era of
prohibition, and cautioned readers to avoid repeating lessons of the past. Vidal states, No
one in Washington today recalls what happened during the years alcohol was forbidden to
the people by Congress that thought it had a divine mission to stamp out Demon Rum and
so launched the greatest crime wave in this countrys history, caused thousands of deaths
from bad alcohol, and created a general (and persisting) contempt for the laws of the United
States. I ask, Does this sound at all familiar on a grander scale? The lifting of this
prohibition of marijuana has massive economic impact on this country and every state. It
also affects several other areas where the economic benefits will trickle down to. In this
paper I will state some controversial facts and reasons why marijuana should be legalized
nationally on a federal and state level. The war on drugs has been the cause of over 21
million American citizens to be cited or arrested for violating various marijuana laws despite
avid law enforcement. It has also been stated that over 100 million people in this country
have tried marijuana and 1 in 10 admit regular use. These figures alone show that the
Congress imposed prohibition is and has never worked and is only costing money and
destroying situations and families.
The most obvious and influential reason is the tax revenues it would generate on both
federal and state levels. According to several various studies conducted the average annual

ECONOMIC IMPACT OF LEGALIZING MARIJUANA

trade of marijuana is roughly $113 billion, which represents an estimated $45 billion in tax

revenue nationally (SMITH, 2014). These figures are only a rough estimate that Harvard
economist Jeffery Miron has came up with. When you apply this sales tax rate of 7% to
Indiana sales alone, $244,941,652, we are talking about approximately $17,145,915 in
state tax revenue (RAGHAVAN, 2014). This generated revenue could be used by states in
other areas where funding is hard pressed, such as education, social services, drug abuse
prevention and rehabilitation programs and other areas.
Another reason for legalization that has an economic impact would be it would take the
product off of the black market and out of the underground. The war on drugs costs the
taxpayer an amazing amount annually with failing results. This would take marijuana off of
the Schedule I list and make law enforcement more readily available to pursue more hard
core and dangerous drugs. This would eliminate a percentage of the drug dealers you see
on every corner and in every high school hallway nationwide. This would eliminate the time
and money spent investigating growers, traffickers and dealers. In turn this aspect of
economic impact leads to the next ripple in the impact of legalization.
The effect it would have on the amount of money allocated to the prison system and
spending in this area would dramatically decrease. The judicial system would be able to
refocus its efforts and time on other criminal proceedings that are much more pressing and
dangerous. Judges, courts, officers of the courts and administrative workers would be able
to be more productive in their positions and in return it would result in an impact on the
economy of that state. Again, this leads back to the fact that tax revenue generated could
be redirected to the judicial system and law enforcement agencies necessary to run it.
People have to realize the expense it takes to house and feed the people imprisoned. It also
has to consider the expense of continuously building more prison facilities and running these
facilities are often state funded. This decrease in prison population trickles down to the next
level of impact from legalization.

ECONOMIC IMPACT OF LEGALIZING MARIJUANA

Decreasing the prison population, this would release a large percentage of otherwise absent

parents often fathers, back into the community. This fact has a direct impact on the
communities and families they come from. It has been proven that systematic poverty is
directly linked to fractured communities and families (SMITH, 2014). This would allow these
parents participate financially and contribute to their family and society: Hence, increasing
the revenue and productivity of that family and community. Could this legalization be a
possible solution or at least assist the decrease in poverty? This influx of income into the
otherwise lower income families and communities could decrease the necessity for
government assistance through food stamps, Medicaid, and other state funded aid. This
again would be revenue that could be redirected to other areas of need such as education
system. The influx of labor from releasing this prison population would benefit employment
statistics of this state and possible levels of federal funding allocated to that state.
On an employment position this legalization would increase business in several industries.
Agricultural industries and its suppliers would have a direct increase in business causing the
need for more employees. Employment rates would increase which would increase the
amount of money is put back into the Indiana economy. This would in turn draw more
people to come here which would create a need for housing and an increase in the
construction and housing industries. This in turn could affect the suppliers of these
industries and the employment cycle continues to trickle all the way to the increase of
business for utility companies, grocery stores, farmers producing livestock or crops, or any
other industry that supports these listed industries. This is just another avenue of revenue
generated by the legalization of marijuana. These effects directly affect the well being and
livelihood of Indiana residents of every demographic be it race, gender or location. The
trickle down of this revenue is phenomenal and untapped. It affects every area and every
industry, some of which arent listed, trucking, manufacturing, packaging, distribution,
regulating, testing etc. It could even be said it would affect the tourism aspect of Indiana.

ECONOMIC IMPACT OF LEGALIZING MARIJUANA

Look to Amsterdam as an example of this. Although not the only reason to visit Amsterdam

it is a large draw that you can go there and legally sample the products stemming from
marijuana. Conventions, fairs, sampling gatherings and other events cause revenue from
tourism industry. This trickles down to affect restaurant, hotels and motels, taxis and other
industries related to tourism. Are you see and understanding how grand the scheme of this
legalization is and could be?
It is argued that legalization will increase usage and that marijuana is a gateway drug that
will cause a societal downfall. I beg to disagree. It has been scientifically proven that
marijuana is less dangerous and addictive than alcohol and tobacco. It has also been
proven that legalization leads to a decrease in crime and often deters from trial of more
dangerous and addictive substances (HIGH TIMES, 2014). When it comes to productivity
and the effect it has or the increase of people working under the influence, the same rules
and laws need to be applied as there are with working under the influence of alcohol or
prescription drugs. Of course marijuana should be regulated and monitored just as all other
substances such as alcohol and tobacco is. Areas where such businesses that sale or
manufacture should have location restrictions and licensing requirements just as liquor store
of business that sells cigarettes.
In conclusion, I have stated only a few obvious reasons why legalization of marijuana should
be legal and the economic impact it would have on the nation as a whole and the state of
Indiana. I have not even broached the medical benefits of the substance due to the
ramifications from the pharmaceutical industry and their ultimate resistance to legalizing.
Various studies have been conducted and legalization in Colorado and Washington have
proven that this lift of the prohibition imposed directly relates to a decrease in crime, new
industry growth, decrease of unemployment, increase in tax revenue, and increase in the
well being of the communities and families in these areas.

ECONOMIC IMPACT OF LEGALIZING MARIJUANA

BIBLIOGRAPHY

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DIGHE, R. (2014, JUANUARY 30). LEGALIZE IT--THE ECONOMIC ARGUMENT. Retrieved
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FAIRCHILD, C. (2013, APRIL 20). LEGALIZING MARIJUANA WOLD GENERATE BILLIONS
IN ADDITIONAL TAX REVENUE ANNUALLY. Retrieved from
HUFFINGTONPOST.COM:
http://www.huffingtonpost.com/2013/04/20/legalizing-marijuana-taxrevenue_n_3102003.html
HIGH TIMES. (2014, JANUARY 17). 10 REASON MARIJUANA SHOULD BE LEGAL.
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MIRON, J. (2014, NOVEMBER 19). WHY CONGRESS SHOULD LEGALIZE POT. Retrieved
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RAGHAVAN, D. (2014, SEPTEMBER 22). CANNABIS CASH: HOW MUCH MONEY COULD
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SCHNEIDER, D. (2014, MARCH/APRIL). POT ECONOMICS. Retrieved from
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ECONOMY. Retrieved from THEDAILYDOT.COM:
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